With single stage tendering, the price is set outright. In the two stage tendering process, collaboration is emphasized. Both have their own (dis)advantages.
Whether to pursue single stage vs two stage tendering may be a question faced by many bidders. One of them implies being upfront and establishing the price from the go, and the other option involves coming to a more collaborative conclusion. In this article, we’ll highlight the difference they make in the tendering process.
Single Stage Tendering
A single-stage tender is a more traditional option. During this tendering process, the customer will set out their project requirements, and several bidders will compete based on the price. This is possible as all the information required to calculate a realistic bid price is available from the get-go. There are pros and cons to this tendering process.
The advantages of single-stage tendering are that the client benefits from competition, which can lead to more competitive pricing. Given that contractors were shown a detailed project design, there is reduced scope for making obnoxious price claims. Moreover, the client also benefits from a set fixed price that’s established through the tendering process. As such, there’s a clear statement regarding the risk for both parties. This simplified tendering process also speeds up the entire procurement process, kickstarting the project more quickly compared to the two-stage process, where negotiations can extend for longer periods of time.
The downsides of the single-stage approach are that it often implies significant expenses and effort by the tenderer, with only a small chance of winning the tender in sight. On the tenderer's side, there is large uncertainty about the winning bidder and their performance. This is because the bid is won (for the lowest price) based on an underdeveloped and/or incomplete design.
In contrast, the two-stage approach––as you may have guessed––is a two-stage tendering process. In the first stage, the buyer provides an outline of the project design they require, and the contractors compete with each other to obtain the preferred contract status. For a contractor, the first stage would include submitting the desired price for assisting with the design, as well as stating the schedule of rates used to form a standard fixed price for the complete works during stage two. Depending on these qualities, only the preferred bidder gets through to the second stage of this tendering process. This preferred bidder then assists in the design of the project. Thus, two-stage tendering allows the client to relay the majority of the design risk to the contractor, which ends up becoming embedded in the team of the buyer.
The advantages of the two-stage process flow through a two-way street. Firstly, the project doesn’t have to be fully designed and broken down into costs to start the project. Secondly, the buyer benefits from the technical expertise espoused by the contractor. As a result, given that contractors and suppliers work collaboratively as a collective, contractors can also reduce overall delivery costs and put forth realistic timescales.
Yet, this collaborative environment brings about its own drawbacks as well. As the contractor has collaborated closely with the entire team on a solid foundation for the design detail, there are communication risks. If the two parties don’t communicate well, it is unlikely that they’re able to reap the benefits of collaboration and clarity around the project.
As such, it’s best to think about whether a collaborative team environment is what you’d need for your project or whether competition should be its main driver. This will help you as a tenderer chooses between single-stage or two-stage tendering.